Bangko Sentral ng Pilipinas (BSP) authorities expressed concern last month about moves by banks in the United States to deliberately reduce their remittance business because of suspicion that it is being used to funnel funds to terrorists. Several large banks in the US have even stopped providing remittance services altogether.

BSP Governor Amando M. Tetangco Jr. said that they would monitor developments and explore alternative ways to enable overseas Filipino workers (OFWs) to continue sending money to their families in the Philippines, if the US banks totally scrap their remittance services.

The BSP’s authorities’ concern is understandable. The US is one of the largest sources of OFW remittances because it also has the largest population of temporary workers and migrants from the Philippines. There are more than three million of them, out of at least 10 million overseas Filipinos, and they represent about 10 percent of the Philippines’ total population.

The remittances of OFWs and the business process outsourcing (BPO) industry have sustained the country’s economic growth even during global crises. These two sectors have been driving demand in consumption spending, which offset the decline in exports during the crisis triggered by the near financial meltdown in the US in 2008 and the subsequent domino effect on the European Union.

Kaushik Basu, senior vice president and chief economist of the World Bank, noted in an October, 2013, report that remittances “act as a major counter-balance when capital flows weaken as happened in the wake of the US Fed announcing its intention to rein in its liquidity injection program. Also, when a nation’s currency weakens, inward remittances rise and, as such, they act as an automatic stabilizer.” The report ranked the Philippines as the third largest recipient of officially recorded remittances for 2013, estimated at $25 billion, behind India, which received $71 billion;and China, which received $60 billion.

In a sep arate report, the BSP said cash remittances from overseas Filipinos coursed through banks in 2013 reached $22.8 billion, reflecting an annual growth rate of 6.4 percent from 2012 and exceeding the BSP’s 5 percent growth target.

Remittances, which account for close to 10 percent of the country’s total output of goods and services or the Gross Domestic Product (GDP), are forecast to increase by at least 5 percent to reach a record high of $24 billion in 2014. For the first six months of the year, cash remittances already grew by 5.8 percent to $11.4 billion, compared with $10.8 billion for the same period in 2013.

Economists believe that for long-term and sustainable growth, the Philippines needs foreign direct investments (FDIs), which are used to set up industries, particularly manufacturing facilities that serve both the domestic and export markets, in the process generating employment.

Remittances, on the other hand, are mainly used for purchases of consumer goods like household appliances. In fairness, remittances have also been fuelling the growth of the retail and real estate industries, as well as helping more Filipino families to move up to the middle economic class.

The BSP attributed the increase to investors’ confidence in the Philippines’ sound macroeconomic fundamentals. For the period January to May, 2014, net FDI inflows amounted to $2.9 billion, an increase of $700 million from $2.2 billion for the first five months of 2013.

In my view, the BSP is doing the right thing in monitoring developments regarding the remittance services of US banks. I am confident, however, that our modern-day heroes will be able to continue sending money to their families, which comprise 50 million people (based on five members per household and 10 million OFWs) or about half of the country’s population. For example, banks from other countries can take over the remittance services from their US counterparts, if the latter actually stop providing such services.

From another perspective, I look at the reports about the possible disruption on the flow of remittances as another reminder that the government cannot, and should not, consider labor export as a permanent fixture of the economy. The emotional and social costs of dividing families cannot be outweighed or justified by the amount of foreign exchange that OFWs send every year.

With the latest conflicts threatening OFWs in several countries in the Middle East and North Africa, the government should intensify efforts to generate decent jobs here, such as more long-term investments in manufacturing and other industries. Source: tempo.com.ph